Manila's Ayala Land sees margins down as costs rise

MANILA, Jul 03, 2008 (Reuters via COMTEX) -- AYAAF | Quote | Chart | News | PowerRating -- The Philippines' biggest property developer, Ayala Land Inc (ALI.PS), expects its margins to be pressured this year due to rising construction costs and oil prices, the company's president said on Thursday.

Ayala Land, the country's seventh most valuable firm and a unit of Philippine conglomerate Ayala Corp (AC.PS), earlier said it was spending 24 billion pesos ($527 million) this year, 60 percent more than in 2007, to fund residential, office building, hotel and retail development projects.

"The products have already been pre-sold, but now that you are building it, construction materials cost more," Ayala Land President Jaime Ayala told reporters.

"The net result is, there will be a lot of compression on margins. So we are really working on the other costs and whatever we can do," Ayala said.

Ayala, who is not related to the Zobel de Ayala family which owns the Ayala group, said steel prices have doubled and cement costs have risen 25 percent since the start of the year.

"With oil, that affects a lot of things. So our construction costs are definitely up significantly," Ayala said.

The builder of upscale malls, hotels, high-rise offices and residential condominiums and villages has locked in long-term three-year cement contracts giving it protection from price surges. But it only has short-term steel contracts, with steel accounting for about 10 percent of construction costs.

But there has been no significant slowdown in the take-up of the company's residential projects despite rising inflation, as a weak peso is a boon to Filipino overseas workers who account for at least a fifth of Ayala Land's total housing revenues.

"With the exchange rate going the other way, the products are becoming more affordable," Ayala said. "We have not seen a significant slowdown in sales."

The Philippine peso (PHP=) has fallen more than 9 percent so far this year and is now the region's biggest laggard, a complete reversal from last year when it was Asia's best performing currency.

Ayala Land is expected to post net income of 5.0 billion pesos this year, up 13.6 percent from 4.4 billion pesos in 2007, according to Reuters Estimates.

($1 = 45.5 pesos)

(Editing by Tomasz Janowski)

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